Information Transparency and Customer Churn: Evidence from the Insurance Industry (under review)

Customer churn is a key challenge for firms, especially in competitive markets where information is highly transparent on the Internet. Using rich data from a major European insurance company, we find that information transparency at purchase reduces customer churn, contrary to industry belief. Notably, customers acquired from a transparent channel (i.e., third-party comparison websites) show a lower churn rate, on average, than do customers from less transparent channels. The effect holds across different identification strategies, including linear and nonlinear regressions, matching, and a quasi-experiment over 53 days during which the company could not use third-party comparison websites for acquiring customers. We also conduct a survey as a robustness check, accounting for confounding channel differences and using a subjective measure of transparency. Further, we explore the underlying mechanisms. Drawing on consumer informedness literature, we decompose the role of information transparency into two mechanisms: (i) price information transparency that increases customers’ price sensitivity and induces churn; and (ii) product information transparency that decreases quality uncertainty and reduces churn. To test these mechanisms, we simulate each of the “getting a quote” processes on a major comparison website for 1,200 random customers to collect data on all insurance products and price offerings available to them. We find that product transparency exerts a stronger effect than price transparency on customer churn, elucidating the overall churn-reducing effect of information transparency. Our findings integrate the literatures on information transparency, price/product informedness, and customer churn, and we recommend firms to leverage product (versus price) transparency to manage churn.